Chapter I: Current Trends and Challenges in the World

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Chapter I: Current Trends and Challenges in the World
UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT
GENEVA
TRADE AND DEVELOPMENT
REPORT, 2016
Structural transformation for
inclusive and sustained growth
Chapter I
CURRENT TRENDS AND CHALLENGES IN
THE WORLD ECONOMY
UNITED NATIONS
New York and Geneva, 2016
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Current Trends and Challenges in the World Economy
Chapter I
CURRENT TRENDS AND CHALLENGES
IN THE WORLD ECONOMY
A. A year of living dangerously
The world economy in 2016 is in a fragile state,
with growth likely to dip below that registered in both
2014 and 2015. The mediocre performance of developed countries since the 2008–2009 economic and
financial crisis is set to continue, with the added threat
that the loss of momentum in developing countries
over the past few years will be greater than previously
anticipated. Without a change of course in the former,
the external environment facing the latter looks set to
worsen with potentially damaging consequences for
their prosperity and stability in the short to medium
run. More widespread contagion from unforeseen
shocks cannot be ruled out, knocking global growth
back even more sharply. The decision by the United
Kingdom electorate to leave the European Union
(EU) is such a shock.
Growth in the United States this year is likely
to slow down, as the momentum that was built
through the quick detoxification of its banking system and a more aggressive use of monetary policy
loses traction. Unemployment has dropped steadily
to the level registered before the crisis hit and real
earnings have begun to pick up. However, given its
weak underlying employment rate, the number of
distressed households with high levels of debt and
exporters struggling with a strong dollar, there are
no guarantees that the economy will enjoy a robust
period of growth any time soon.
Recovery in the euro zone has lagged behind
that of the United States, in part because of the more
timid use of monetary policy but also very tight fiscal stances in some countries. The tentative pick-up
of growth from 2015 seems likely to stall this year,
and could even be reversed due to the uncertainty
triggered by the announced departure of the United
Kingdom from the EU (“Brexit”). Economic growth
continues to be held back by weak domestic demand
and only sporadic signs of an improvement in real
wages. Efforts to tackle the sharply diverging economic performances of the countries in the euro zone
are complicated by political uncertainties, such as the
ongoing migration crisis, and doubts about the future
pace and direction of European integration.
European economies outside the euro zone have
performed better in recent years, mainly because
the monetary authorities in many of those countries
have been willing, and able, to orchestrate financial
bubbles. The economy of the United Kingdom, even
without the threat of Brexit, is set for a difficult
period ahead given its levels of indebtedness and a
persistently high trade deficit. The longer term consequences of the leave vote are still unclear, given
the unprecedented nature of the decision and the
political uncertainty it has created, though growth
will undoubtedly slow in the short term. Just how
steep the drop could be, given the highly financialized
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Trade and Development Report, 2016
and flexible markets in the United Kingdom, is difficult to predict.
Japan continues to exhibit a distinct set of
economic characteristics that have emerged from
decades of underperformance, with persistently low
and erratic growth accompanied by a low unemployment rate (currently around 3 per cent), a huge level
of domestic debt and a strong payments position.
However, like other developed economies, Japan has
seen the share of wages in income drop significantly
over the past few decades (registering amongst the
largest declines in developed economies, albeit in part
for demographic reasons) without seeing a recovery
in investment. Consumption has remained weak,
leaving exports as the preferred source of expanding
demand. More recently, with the weakening of global
markets and an appreciating yen, efforts have turned
to stimulating government spending; so far with only
a modest response.
The continuation of weak demand conditions
in the developed economies is stifling growth in the
global economy. In this context, neither financial
bubbles nor export surpluses offer a sustainable
solution to tepid growth and weak labour market
conditions. Financial bubbles can, at best, provide a
temporary boost but tend to aggravate the deflationary
gap by increasing inequality and create supply-side
distortions that impede productivity growth. Export
surpluses can certainly benefit those that achieve
them but they are ultimately a beggar-thy-neighbour
response in a world of insufficient global demand.
As argued in past Reports, a more balanced
policy response is called for in the developed
economies, combining an expansionary fiscal stance
resulting from both spending and taxation decisions,
supportive monetary and credit policies along with
strengthened financial regulations, and redistributive
measures through minimum wage legislation, direct
taxation and welfare enhancing social programmes.
The appropriate policy mix will vary across countries, though large public infrastructure spending
would seem to be a common thread. Moreover, part
of the required policy measures need to be taken at
the multilateral level, including initiatives to stem
tax evasion and avoidance and to implement a lowcarbon growth pattern.
In the absence of concerted recoveries across
the developed economies, international trade is
registering a fifth straight year in the doldrums,
becalmed by a lack of global aggregate demand. This
has taken the wind out of the growth sails of many
developing countries, particularly commodity exporters, and recent growth spurts have relied largely on
capital inflows. Whilst greater inflows can, in part,
be explained by improved macroeconomic management in recipient countries, the bigger factors have
been moves to open the capital account that picked
up speed in many developing countries in the new
millennium and the post-crisis policy mix in developed economies which has pushed investors to seek
high-return (and higher risk) opportunities abroad.
Domestic financial markets in developing countries have become much more open to non-resident
investors, foreign banks and other financial institutions
while restrictions on their own residents investing
abroad have been reduced and financial institutions
have diversified into cross-border activities unrelated
to international trade and investment. These developments have deepened their financial integration and
amplified boom conditions across all developing
regions. But they have also created new sources of
vulnerability.
Developing economies will likely register much
the same average growth rate as 2015, 3.8 per cent,
but with considerable variation across countries and
regions, and with downside risks increasing. There
have been sharp slowdowns, and even a return to
recession, in some countries including big emerging
economies, notably Argentina, Brazil, the Russian
Federation and South Africa. Other economies are
also set for chilly times ahead with smaller commodity producers particularly vulnerable. The commodity
cycle is in its second year of a sharp downward trend.
The drop in mining, fuel and agricultural raw material prices has been particularly sharp; that of other
commodities, including food and tropical beverages,
less so. A moderate recovery has taken place in recent
months, but there is little anticipation of this continuing in the coming years.
With investors exiting developing and transition
economies, net capital flows turned negative in the
second quarter of 2014, and amounted to -$656 billion
in 2015 and -$185 billion in the first quarter of 2016.
Even though there was a respite in the second quarter
of 2016, there remains a risk of deflationary spirals in
which capital flight, currency devaluations and collapsing asset prices would stymie growth and shrink
Current Trends and Challenges in the World Economy
government revenues, and cause heightened anxiety
about the vulnerability of debt positions.
Size can still provide a buffer against unfavourable headwinds blowing in from the global economy.
The two largest developing economies, China and
India, may escape the worst of these threats thanks
to expanding domestic markets and a combination
of sufficient foreign reserves and an effective use of
policy space.
China’s economy has slowed sharply over
the past few years, although it is still maintaining a
relatively high growth rate of 6.5–7 per cent. While
this, in part, reflects its ongoing evolution away from
an excessive reliance on external markets to boost
growth, the surge in domestic credit in response to
the crisis has created a debt bubble which, along with
excess capacity in several sectors of the economy,
will not be easy to manage if it bursts. India has so
far managed the downside risks of the post-crisis
period and is now growing faster than China. Private
investment, which began rising strongly from the
start of the millennium, continued even as the crisis
hit. However, it has weakened in the past few years,
while public investment has yet to take off in a context of serious infrastructure gaps that could constrain
future growth.
The reluctance of developed economies to deal
effectively with their own high levels of indebtedness
(or rather the tendency to do so through bailouts for
creditors and austerity for debtors) and their insistence in relying almost entirely on monetary policy to
orchestrate recovery highlight the potential dangers
facing policymakers in developing countries. Alarm
bells have begun to ring over exploding corporate
debt across emerging economies, and it appears that
much of the surge of financial inflows into emerging
and developing economies has found its way into real
estate and financial asset bubbles rather than longterm productive investment projects.
If the global economy slows down more sharply,
an important part of developing country debt incurred
since 2008 – not only debt issued and held within the
borders of individual economies but also cross-border
debt, including debt accumulated by private residents
and governments – could become stressful or even
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unpayable. Thus, the international community will
need to prepare itself for managing debt work-outs
in a faster, fairer and more orderly manner than is
currently the case.1
Separately, a slowdown in productivity growth,
rising inequality, insufficient global demand and
mounting levels of debt would pose serious challenges to policymakers at national and international
levels; together they pose a massive threat to shared
prosperity and stability. The International Monetary
Fund (IMF) has warned policymakers to be alert;
perhaps it is also time for them to become a little
more alarmed.
While there is agreement that these weaknesses
are closely interconnected, there is no sign of a
concerted move towards policy coordination across
systemically important economies. The United States
has begun to recognize that its economic policy decisions can carry a sizeable impact beyond its own
borders, with the Federal Reserve responding with an
even more cautious stance on interest rate rises. But a
more ambitious policy package is needed to address
existing imbalances and to ease the constraints on
faster growth, whether in large or small countries,
surplus or deficit economies, commodity or manufacturing exporters, creditors or debtors. A global
new deal will need to move beyond business as usual.
There are signs that international bodies such
as the IMF and the Organisation for Economic
Co-operation and Development (OECD) are rethinking their approach to macroeconomic adjustment
(although this has not yet been sufficiently translated
into their policy recommendations or conditionality).
The necessary next step is for them to move away
from a narrow discussion of structural reform that
promotes a familiar package of liberalization and
deregulation measures, and instead consider the wide
range of actions needed to diversify the structure and
level of sophistication of economic activity. Such
actions should aim to increase productivity, create
more and better jobs, boost household incomes,
increase fiscal revenues and investment, and foster
technological progress; and all these need to be
implemented in the context of a world that is rapidly
moving towards a low-carbon future. This is a subject
taken up in subsequent chapters of this Report.
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Trade and Development Report, 2016
B. Recent trends in the world economy
1. Growth performance
contribution to growth in the first months of 2016,
including through a decrease in imports.
In 2016, global output is likely to decelerate
moderately to a growth rate around 2.3 per cent, compared with 2.5 per cent 2015. This is the sixth year
in a row that the global economy repeats a modest
expansion, well below that of pre-crisis levels. This
year’s performance reflects an expected slowdown
in developed countries growth, from 2 to 1.6 per
cent; economic stagnation in transition economies,
an improvement over their contraction in 2015; and
the continuing growth in developing countries of
about 4 per cent, resulting from sustained growth
in most Asian countries, a deceleration in Africa
and economic recession in Latin America and the
Caribbean (table 1.1).
After several years lagging well behind the
United States, owing to the more timid use of
monetary policy and an even greater proclivity for
austerity measures in some countries, growth in the
euro zone accelerated from 0.9 per cent in 2014 to
1.7 per cent in 2015. Although no further acceleration is expected in 2016. This improvement did not
result from an expansion of net exports, despite the
depreciation of the euro in 2014–2015, but rather
from higher domestic consumption and investment
levels, with some increase in real wages as a result of
rises in the minimum wage and falling energy prices.
Faster growth was also backed by an expansionary
monetary policy and a less stringent fiscal stance.
These improvements, however, remained below
expectations, as monetary expansion by the European
Central Bank (ECB) has not translated into a proportionate increase of credit to the real sectors. This
reflects the still limited credit demand of the private
sector and persistent difficulties in several national
banking systems that are still burdened by high levels
of non-performing loans (NPLs), which may require
further capitalization, as seems to be the case for a
number of banks, most notably in Italy, but also in
Germany, Ireland and the United Kingdom (EBA,
2016). In addition, fiscal policies are not providing
the needed support to economic growth, despite being
slightly more accommodative in Germany – to handle
the migration crisis.
Among the developed countries, the United
States is expected to continue growing in 2016,
albeit with a significant deceleration to less than 2 per
cent, and probably closer to 1.5 per cent. Growth is
almost exclusively led by private consumption, as
unemployment drops to a level close to that registered
before the crisis hit and as workers’ real earnings
have begun to pick up. In a longer term perspective,
however, these improvements remain modest, considering that low unemployment is partly due to a fall
in the employment participation rate,2 and that real
median earnings have been essentially flat since the
1970s, despite persistent productivity growth.3 On the
other hand, the contribution of investment spending
has been weak (and has actually declined since mid2015) despite low interest rates. There has been no
additional government stimulus, with the drag from
lower federal government spending offset by positive
contributions to growth by state and local government spending. Finally, after their strongly negative
impact in 2014 and 2015 owing to the appreciation
of the dollar, net exports have made a slight positive
European economies outside the euro zone have
performed better in recent years, partly because they
faced lower fiscal constraints, but mostly because
they had more expansionary monetary stances, which
led to asset appreciation. Such policies were applied
in particular in the United Kingdom, where high trade
deficits and high debt levels could be financed with
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Current Trends and Challenges in the World Economy
Table 1.1
WORLD OUTPUT GROWTH, 2008–2016
(Annual percentage change)
Region/country
2015 2016a
2008
2009
2010
2011
2012
2013
2014
World
1.5
-2.1
4.1
2.8
2.2
2.2
2.5
2.5
2.3
Developed countries
of which:
Japan
United States
European Union (EU-28)
of which:
Euro zone
France
Germany
Italy
United Kingdom
EU member States after 2004
0.1
-3.6
2.6
1.5
1.1
1.1
1.7
2.0
1.6
-1.0
-0.3
0.4
-5.5
-2.8
-4.4
4.7
2.5
2.1
-0.5
1.6
1.8
1.7
2.2
-0.4
1.4
1.7
0.3
0.0
2.4
1.4
0.5
2.6
2.0
0.7
1.6
1.8
0.5
0.2
1.1
-1.1
-0.5
3.6
-4.5
-2.9
-5.6
-5.5
-4.2
-3.6
2.1
2.0
4.1
1.7
1.5
2.0
1.6
2.1
3.7
0.6
2.0
3.1
-0.9
0.2
0.4
-2.8
1.2
0.5
-0.3
0.7
0.3
-1.8
2.2
1.1
0.9
0.2
1.6
-0.3
2.9
2.7
1.7
1.2
1.7
0.8
2.3
3.4
1.6
1.5
1.7
0.8
1.8
2.6
5.4
-6.6
4.7
4.6
3.3
2.0
0.9
-2.8
0.0
5.8
5.3
-1.9
-6.8
1.5
4.9
1.7
4.8
-0.6
3.5
2.4
2.0
0.3
0.9
2.0
-3.0
2.8
-0.2
5.2
-7.8
4.5
4.3
3.5
1.3
0.7
-3.7
-0.3
5.2
2.4
7.8
5.9
4.8
4.6
4.4
3.9
3.8
Africa
North Africa, excl. Sudan
Sub-Saharan Africa, excl. South Africa
South Africa
5.5
6.3
6.1
3.2
3.2
2.8
5.8
-1.5
5.2
4.1
6.7
3.0
1.1
-6.6
4.7
3.2
5.6
10.1
4.6
2.2
2.0
-3.7
5.2
2.2
3.7
1.5
5.8
1.5
2.9
2.9
3.5
1.3
2.0
1.7
2.8
0.3
Latin America and the Caribbean
Caribbean
Central America, excl. Mexico
Mexico
South America
of which:
Brazil
3.7
2.6
3.8
1.4
5.0
-2.1
-0.9
-0.7
-4.7
-1.0
5.9
3.1
3.7
5.2
6.6
4.5
2.2
5.4
3.9
4.8
3.0
2.1
4.8
4.0
2.6
2.7
2.9
3.6
1.4
3.3
1.1
2.8
3.9
2.2
0.3
0.2
3.6
4.1
2.5
-1.4
-0.2
2.5
4.0
2.2
-1.8
5.1
-0.1
7.5
3.9
1.9
3.0
0.1
-3.8
-3.2
Asia
East Asia
of which:
China
South-East Asia
South Asia
of which:
India
West Asia
5.7
6.9
3.8
5.9
8.8
9.7
7.0
7.8
5.2
6.0
5.5
6.3
5.5
6.2
5.1
5.4
5.1
5.5
9.6
4.2
4.8
9.2
1.6
4.4
10.6
8.0
9.1
9.5
4.8
5.5
7.7
5.8
3.1
7.7
4.9
5.0
7.3
4.4
6.3
6.9
4.4
6.1
6.7
4.3
6.8
6.2
4.0
5.0
-2.0
11.0
6.2
6.1
7.7
4.9
4.1
6.3
3.4
7.0
3.0
7.2
2.9
7.6
2.1
Oceania
2.0
0.8
4.1
3.7
2.7
2.2
3.6
4.7
2.9
South-East Europe and CIS
b
South-East Europe
CIS, incl. Georgia
of which:
Russian Federation
Developing countries
Source: UNCTAD secretariat calculations, based on United Nations, Department of Economic and Social Affairs (UN DESA), National
Accounts Main Aggregates database, and World Economic Situation and Prospects (WESP): Update as of mid-2016; ECLAC,
2016; Organisation for Economic Co-operation and Development (OECD), 2016a; International Monetary Fund (IMF), World
Economic Outlook, April 2016; Economist Intelligence Unit, EIU CountryData database; JP Morgan, Global Data Watch; and
national sources.
Note: Calculations for country aggregates are based on GDP at constant 2005 dollars.
aForecasts.
bAlbania, Bosnia and Herzegovina, Montenegro, Serbia and the former Yugoslav Republic of Macedonia.
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Trade and Development Report, 2016
capital inflows. The recent vote to exit the European
Union could compromise these policy stances by
reducing the attractiveness of the United Kingdom
economy to foreign investors, leading to asset and
currency depreciations, lower domestic consumption and investment, and a deterioration of balance
sheets in all sectors, including lending institutions
with higher levels of NPLs.
Japan continues to struggle against economic
stagnation and the risk of price deflation, owing
largely to weak private consumption. With little
dynamism from global demand and an appreciating yen, exports provide little economic stimulus.
Furthermore, despite a combination of negative
interest rates and a programme of quantitative easing, the Bank of Japan could not avoid consumer
price deflation in the first half of 2016, which was
far from the goal of 2 per cent inflation. Lower yields
in government bonds provided some extra room for
expanding public expenditure, which remains an
important factor to stimulate the economy. Fiscal
policy faces competing goals, between aiming at
fiscal consolidation targets through a new increase in
consumption taxes and supporting economic activity. Recent decisions (postponing the announced tax
increase and launching a new public spending package) indicate that the second goal will prevail, at least
in the short term. In addition, sustained growth would
require a reorientation of income policies that would
reverse the long-term drop in the wage share of GDP.
GDP in the transition economies of the Com­­
monwealth of Independent States (CIS) is expected
to stagnate in 2016, after the sizeable contraction of
2015. The factors that adversely affected many of
these economies in 2015 (in particular low commodity
prices, net capital outflows, falling real wages, conflicts and unilateral coercive measures) still weigh on
growth, but have softened, and in some cases have
started to reverse. The mild recovery of oil prices,
stabilization of exchange rates and moderation of
domestic price inflation have restored some room for
manoeuvre in the Russian Federation to start recovering domestic demand and industrial production.
Still, its GDP growth, as that of other major oil producers such as Azerbaijan and Kazakhstan, is likely
to contract moderately in 2016. Most oil-importing
countries (Armenia, Belarus, Georgia, Kyrgyzstan,
Republic of Moldova and Tajikistan) face a mixed
outlook, as they continue to benefit from low fuel
prices, but their exports, investment and remittances
remain hampered by the ongoing recession in the
Russian Federation. Ukraine’s economy is expected
to return to growth, albeit at a slow pace, as political
tensions diminish and inflation decelerates. Finally,
growth in South-East Europe is expected to pick
up slightly in 2016, mostly as a result of increased
exports and heightened foreign investment.
Latin America is heading towards a second
consecutive year of economic stagnation and a risk
of negative growth in 2016 (ECLAC, 2016). This is
due mainly to weak economic performance in South
America, where several countries have experienced
falling levels of consumption and fixed capital
formation. Tighter external conditions (including
losses from the terms of trade) in 2015 led to fiscal
retrenchment and exchange rate depreciation. To
check the resulting threat of inflation, some countries,
such as Brazil and Colombia, responded by raising
interest rates, causing further growth deceleration.
Furthermore, economic contraction in Brazil is likely
to continue, given the tight monetary conditions, the
Government’s intention to further tighten fiscal policy
and political uncertainty that is affecting investment.
Similarly, growth in Argentina is forecast to be negative as a result of high interest rates, lower real wages
due to inflation acceleration and cuts in public investment, all of which are affecting private consumption
and fixed capital formation; while the downward
spiral in the Bolivarian Republic of Venezuela continues. Other primary exporters (e.g. the Plurinational
State of Bolivia, Chile and Peru) that managed the
windfall revenues during the bonanza years with a
longer term approach have been able to maintain
positive growth rates. The prospects might improve
marginally in the near future if the partial recovery in
commodity prices since the second quarter of 2016
does not reverse (see subsection B.3 below) and some
positive shifts in capital flows are confirmed.
Mexico and the economies of Central America
and the Caribbean are more closely linked to the United
States’ economic cycle through manufacturing production networks, remittances and tourism. For most
of these economies, growth in 2016 is expected to be
slightly slower than in 2015, partly reflecting growth
deceleration in the United States. In Mexico, the weaker
currency (with the peso losing nearly 25 per cent against
the dollar during 2015 and the first half of 2016) could
provide some stimulus to growth by boosting manufacturing exports but the emphasis on fiscal consolidation
will continue to dampen public investment.
Current Trends and Challenges in the World Economy
Slower growth is forecast for Africa in 2016, due
to weaker performance in North Africa and southern
Africa. In the former, political instability and insecurity will continue to hinder economic recovery. In
southern Africa, activity is expected to decelerate further because of depressed commodity prices, severe
droughts and electricity shortages as well as lower
dynamism in South Africa, which is an important
export destination for neighbouring countries.
East Africa is projected to continue its growth
momentum in 2016, boosted by strong domestic
investment including large public investment programmes, and lower oil prices. Similarly, most
West African countries (Benin, Côte d’Ivoire, Mali,
Senegal and Togo) are expected to record high growth
rates generally, supported by increases in public
investment, improving agricultural productivity and
a dynamic private sector. Besides, as the Ebola epidemic abates, growth is forecast to recover gradually
in Guinea, Liberia and Sierra Leone. By contrast,
prospects remain challenging in Nigeria where
authorities continue to enforce tight monetary and
fiscal policies in order to contain rising inflation and
the currency crisis stemming from the slump in global
oil prices. Falling oil and copper revenues, which in
the past have led governments to cut infrastructure
investment, as well as political tensions, are expected
to continue to put strains on the economies of most
countries in Central Africa. The fall in commodity
prices has also led to deteriorating external debt situations in a number of countries, including Angola,
Ghana, Mozambique and Zambia.
Developing Asia remains the fastest growing
region, with an expected growth rate similar to that
of 2015, around 5 per cent. China grew 6.7 per cent
year-on-year in the first half of 2016, a marginal
slowdown in relation to 2015 (6.9 per cent) that
nevertheless corroborates the shift towards more
moderated growth. This is the result of several factors, including weakness in external demand, efforts
to reduce overcapacity in some sectors and a strategic
reorientation towards consumption-led growth, with a
larger place for services. Gradually, these goals seem
to be progressing, as services outpaced the secondary sector as the main engine of growth, and the real
contribution of private consumption to GDP growth
currently exceeds that of investment. However, while
recent expansionary fiscal and monetary policies
have led to the recovery of the property market and
a surge in State-led investment spending, this may
7
be postponing the needed resizing of some industrial
sectors and the deleveraging process. Hence, the
aspiration of averting financial risks and consolidating a more balanced growth contrasts with the more
immediate motivation of the Government to keep
the economy growing by an average of 6.5 per cent,
as defined in the 13th five-year plan (2016–2020).
India’s growth rate is projected to remain strong,
at 7.5 per cent in 2016, further cementing the rather
large terms-of-trade gains of 2015 (over 2 per cent of
GDP). Growth is primarily driven by rapidly expanding domestic consumption, supported by the low
prices of commodities (particularly fuel), a rise in real
incomes (including public sector wages) and lower
inflation (OECD, 2016b). Export demand declined
in 2015, and gross fixed capital formation weakened
in late 2015 and early 2016; however, investment
(private and public) is expected to expand, which
would support a solid growth performance through
to 2017. Despite these trends, high public debt and
current rates of inflation may limit the room for supportive fiscal policies. The stalled manufacturing
share in GDP, as also reflected in the limited capacity
of the sector to create jobs with higher wages, will
need to be addressed to ensure India’s growth in the
longer term.
South-East Asia is likely to maintain a growth
rate above 4 per cent in 2016, largely based on
domestic consumption and investment demand.
International trade has been sluggish, although the
negative impact of falling exports was partially
compensated in some countries by the positive contribution to growth of declining imports. Lower oil
prices (and related energy subsidies) and low inflation
rates have given room for more supportive fiscal and
monetary policies in several countries of the region;
domestic demand should remain the main driver for
growth (ESCAP, 2016).
Finally, West Asia is expected to grow at around
2 per cent in 2016, down from 2.9 per cent in 2015.
Downward adjustment will hit the major oil exporters
of the region including Kuwait, Qatar, Saudi Arabia
and the United Arab Emirates, whose export revenues
fell on average by 6.1 per cent in 2014 and by 34.1 per
cent in 2015. Even though these countries have benefited from the modest recovery of oil prices in the
first half of 2016, they need to adjust their expenditure
given the significant deterioration in current account
and fiscal balances (fiscal deficit amounted to 15 per
8
Trade and Development Report, 2016
cent of GDP in Saudi Arabia, 13.6 per cent in Kuwait
and 3.7 per cent in the United Arab Emirates in 2015).
Policies aimed at fiscal consolidation will severely
constrain government consumption and public investment, which contributed significantly to GDP growth
in recent years, while the introduction of value-added
tax (VAT) and privatization projects aim at improving
fiscal revenues (Sommer et al., 2016). Such measures
of fiscal austerity may hinder recent attempts in these
countries to diversify away from oil.
estimated 12.7 per cent in 2015. This resulted from
the continuing primary commodity price declines
(particularly for oil) as well as the depreciation of
several key currencies against the dollar. In fact, as
several major economies – like most of those of the
European Union, Japan and to a lesser extent China
– trade in their own currencies, their depreciation
reduces the value of exports denominated in dollars, even if they may register positive values when
denominated in the domestic currencies.
GDP growth in the non-oil exporting countries
in the region (Jordan, Lebanon, Turkey) is likely
to decelerate in 2016; it relies mostly on domestic
consumption growth, as exports contracted already in
2015 and investment ratios either remained constant
(in Turkey) or declined. In Turkey, it will be difficult
to sustain domestic consumption demand at 2015
levels, which was stimulated by credit availability
and the additional demand created by Syrian refugees. In 2016, the country faces additional economic
instability due to recent political frictions; the depreciation pressures on the lira in July 2016 demanded
a strong intervention by the central bank. Falling
revenues from tourism exports, the challenges posed
by a large refugee population and increased financial
market volatility necessitate continuous vigilance by
policymakers.
The slowdown in volumes of merchandise trade
in 2015 (table 1.2) reflects the contraction of import
demand in some large economies, especially in Asia,
Latin America and the transition economies. In Japan,
imports fell in volume by 2.8 per cent, and by 1.6 per
cent in the rest of East Asia – which includes China,
the largest trading economy. In Latin America and
the Caribbean, imports contracted by 1.8 per cent,
while in the transition economies, imports plunged
by 19.4 per cent after contracting already the previous two years.
2. International trade
(a)Goods
International trade slowed down further in
2015. This poor performance was primarily due to
the lacklustre development of merchandise trade,
which increased by only around 1.5 per cent in real
terms (table 1.2). After the roller-coaster episode of
2009–2011, in the aftermath of the global financial
and economic crisis, the growth of international
merchandise trade was more or less in line with
global output growth for about three years. In 2015,
merchandise trade grew at a rate below that of global
output, a situation that may worsen in 2016, as the
first quarter of the year showed a further deceleration
vis-à-vis 2015.4
When measured in current dollars, which matters more for revenues, expenditures and ultimately
balance sheets, merchandise trade dropped by an
The 2014–2015 period also marked a shift in the
driving forces of international trade. After the global
financial crisis, it had been supported primarily by
developing economies and the economies in transition, whose trade flows – particularly imports – had
grown much faster than those of developed countries,
so that they contributed about three quarters of the
increase in global imports over 2011–2013. However,
since 2014, developing countries’ aggregate import
growth has slowed down considerably, from about
6 per cent per year in 2012–2013 to only 0.4 per cent
in 2015. As a result, developed countries’ imports
contributed 91 per cent to the growth of global
imports over 2014–2015, compared with 28 per
cent for developing economies and -19 per cent for
the economies in transition. However, in early 2016
developed countries’ imports (in volume) were only
3 per cent higher than their pre-crisis peak, compared
with 20 per cent for developing economies (chart 1.1).
In developed economies, exports of the United
States were held back in 2015 by slow foreign
growth and the appreciation of the dollar. Meanwhile,
imports increased owing to rising household consumption. In Europe, exports increased with the
acceleration of trade within the continent, which
accounts for roughly two thirds of European total
trade. European exports to the United States were
also robust. By contrast, exports to China and other
9
Current Trends and Challenges in the World Economy
Table 1.2
EXPORT AND IMPORT VOLUMES OF GOODS, SELECTED REGIONS AND COUNTRIES, 2012–2015
(Annual percentage change)
Volume of exports
Region/country
World
Developed countries
of which:
Japan
United States
European Union
Transition economies
Developing countries
Africa
Sub-Saharan Africa
Latin America and the Caribbean
East Asia
of which:
China
South-East Asia
South Asia
of which:
India
West Asia
Volume of imports
2012
2013
2014
2015
2012
2013
2014
2015
3.2
1.6
3.3
2.2
2.3
1.9
1.4
2.2
3.0
1.0
2.7
0.0
2.4
2.8
1.6
3.3
-4.8
3.6
-0.1
0.9
5.2
19.5
2.0
4.1
5.0
-1.5
2.8
1.8
2.3
4.6
-0.7
2.7
1.9
6.7
0.6
4.4
1.7
0.5
3.1
0.0
1.5
3.3
4.9
-1.0
-0.2
3.2
0.9
0.4
2.1
0.6
2.9
-0.5
2.4
2.1
-2.3
6.4
5.6
17.8
9.2
2.4
3.2
0.3
1.0
-0.9
-0.5
6.3
6.5
8.4
3.6
8.9
0.6
4.3
3.3
-7.6
2.5
5.7
4.6
0.2
2.8
-2.8
4.8
3.6
-19.4
0.4
1.5
1.6
-1.8
-1.6
6.2
1.8
-6.1
7.7
4.7
4.1
6.8
3.5
5.2
-0.9
-0.3
-0.2
3.6
5.4
4.1
9.9
4.3
-0.4
3.9
1.7
4.6
-2.2
2.8
7.2
-1.8
6.8
8.5
3.8
3.5
-2.3
-2.1
2.0
5.7
11.4
-0.3
7.4
3.2
1.8
10.1
2.0
Source: UNCTAD secretariat calculations, based on UNCTADstat and national sources.
large developing countries and economies in transition appeared to be subdued. In Japan, by contrast,
both imports and exports declined in real terms, with
imports showing the effects of domestic factors while
exports faced headwinds from the weak demand
emanating from developing Asia.
Likewise, in developing Asia, all the subregions
except West Asia, registered declines in real exports.
The contraction in both exports and imports in East
Asia had adverse effects on the trade dynamics of
many manufacturing export-dependent economies
of the region. In particular, China’s declining trade
weighed on regional trade flows. Real imports by
China declined by 2.2 per cent in 2015 – the first
negative figure in decades – due to slower growth in
manufacturing (affected by weak external demand)
and private investment, as well as internal rebalancing. In addition to depressed demand from developed
economies, increasing competition from other lower
cost producers further affected China’s exports, leading to a decline of 0.9 per cent in 2015. This decline in
Chinese international trade affected the entire region:
China is the largest export market for some of the key
manufacturing economies of developing Asia, such as
Chart 1.1
IMPORT VOLUME, SELECTED COUNTRY
GROUPS, JANUARY 2004–APRIL 2016
(Index numbers, 2005 = 100)
180
170
160
150
140
130
120
110
100
90
80
2004
2006
2008
2010
2012
2014
2016
World
Developed economies
Emerging market economies
Source: UNCTAD secretariat calculations, based on the CPB
Netherlands Bureau of Economic Policy Analysis, World
Trade database.
Note: Emerging market economies excludes Central and
Eastern Europe.
10
Trade and Development Report, 2016
the Republic of Korea, Singapore, Taiwan Province
of China and Thailand, and the second largest market
for Japan and Viet Nam. Some smaller economies
in the region are very dependent on exporting to
China, such as Mongolia (with 90 per cent of exports
going to China), Lao People’s Democratic Republic,
Turkmenistan and Viet Nam (ESCAP, 2016).
In South-East Asia, while exports declined,
imports remained subdued owing to domestic factors
such as slower job creation in Indonesia and high
household debt levels in Malaysia and Thailand.
In South Asia, by contrast, import growth accelerated as lower energy and other commodity prices
improved economic prospects in India and other
economies of the subregion. International trade in
several transition economies in North and Central
Asia registered a marked deterioration in 2015, as
the deep plunge in the global prices of oil, gas and
minerals slashed export earnings and led to steep
currency depreciations, inflation and recession. All
these factors greatly affected the volume of imports
(almost -20 per cent in 2015) without improving that
of exports (ESCAP, 2016).
In Africa, many countries have been hard hit
by the decline in commodity prices and negative
spillovers from developing Asia. Major oil exporters
like Angola and Nigeria have been severely affected.
Meanwhile, for oil-importing African countries
which rely on exporting other commodities, the
benefits of cheaper energy imports were offset by
the general decline in other commodity prices in
a context of depressed foreign demand. In South
Africa, the largest trading partner for most other
African countries, slower growth in export volumes
despite the depreciation of the currency, along with
the decline in commodity prices, have meant only
marginal growth in the nominal value of merchandise
exports.
In Latin America and the Caribbean, plunging
commodity prices have also had major impacts on the
region’s average export revenues in 2015, after the
region registered its worst terms-of-trade deterioration since 1986 (ECLAC, 2016). Countries whose
exports are concentrated mainly in hydrocarbons,
such as the Plurinational State of Bolivia, Colombia,
Ecuador, Trinidad and Tobago, and the Bolivarian
Republic of Venezuela, were among the hardest hit,
followed by countries whose main exports are minerals and metals and agro-industrial products, since
these countries benefited to some extent from the
lower oil prices. By contrast, many Central American
and Caribbean countries enjoyed improved terms of
trade. In the region as a whole, the drop in the value of
exports (-15 per cent) was the result of falling prices.
In real terms, export volumes increased 2.9 per cent,
with, for instance, Mexico’s manufacturing exports
improving markedly owing to currency depreciation
and robust demand from the United States. On the
import side, many countries registered a decline in
real imports. In Brazil, for instance, imports declined
in all major trade categories, including fuel, durable
consumer goods, capital goods, intermediate goods
and non-durable consumer goods. Meanwhile,
imports fell sharply in the Bolivarian Republic of
Venezuela owing to the shortage of foreign currency.
Also, in Ecuador, balance-of-payment safeguard policies and the economic slowdown reduced imports
(ECLAC, 2016).
(b)Services
Trade in services declined by 6.1 per cent
in 2015 in terms of current dollars. Developing
economies were less affected by the trade slowdown
(-2.7 per cent) than developed ones (-7.3 per cent)
or transition countries (-15.4 per cent), while least
developed countries (LDCs) showed an increase in
services exports of 1.3 per cent in 2015. However, just
as for goods trade, this decline was partly due to the
dollar appreciation: at constant prices, trade in services performed significantly better. Indeed, quantity
indicators for two of its main subcomponents, travel
and transport – which account for 25 per cent and
20 per cent of services trade, respectively – continued
to expand in 2015.
International tourism receipts grew by 4.4 per
cent in 2015 in real terms (taking into account
exchange rate fluctuations and inflation). This was
in line with a 4.6 per cent increase in international
arrivals in 2015, reaching a total of almost 1.2 billion.
These receipts grew in all main regions, led by the
Americas (7.8 per cent), Middle East (4.3 per cent)
and Asia and the Pacific (4 per cent); they are followed by Europe (3 per cent) and Africa (2 per cent).
At the country level, Japan and Thailand reaffirmed
their place as major international destinations, with
tourist arrivals up by 47 and 20 per cent compared
with 2014, while Nepal and Tunisia registered sharp
declines in arrivals (UNWTO, 2016a).
Current Trends and Challenges in the World Economy
11
A few leading economies, in particular China,
the United Kingdom and the United States, led outbound tourism last year. The number of outbound
travellers from China rose 10 per cent to 128 million, benefiting Asian destinations such as Japan and
Thailand as well as the United States and various
European destinations. China’s outbound tourism
expenditure has been expanding at double-digit rates
every year since 2004; it further increased by 25 per
cent in 2015 to reach $292 billion. The number of
residents travelling abroad from the United States and
the United Kingdom (the world’s second and fourth
largest source countries) increased by 8 per cent and
9 per cent respectively in 2015 (UNWTO, 2016b).
for most commodities, with weak demand in the
context of slow global growth. This may change as
a result of supply adjustments following low price
levels. But on the demand side, slower growth in
emerging economies is likely to continue to have a
significant negative impact on prices. China’s rebalancing towards domestic consumption and services
could alter its commodity demand patterns and have
a large impact on global markets, although such concerns may be overstated. In general, Chinese demand
for commodities has remained robust in recent years
(see table 1.4). Thus, in 2015 Chinese copper imports
increased by 8.7 per cent, by volume, while those of
crude oil increased by 8.8 per cent.5
The second largest category of commercial
services relates to international transport. World
seaborne trade volumes expanded by 2.1 per cent
in 2015, surpassing 10 billion tons for the first time
in history. But growth was notably slower than the
expansion of the last decade: international seaborne
trade volumes expanded at an even slower rate of
1.7 per cent, down from 5.6 per cent recorded in 2014.
A key reason for this slowdown was weaker Chinese
merchandise trade (UNCTAD, 2016).
Despite some recent changes, the financialization of commodity markets remains a major factor
in determining prices (see TDR 2015, annex to
chapter I). Since 2011, major transnational banks
that were earlier active in commodities retreated
from this market in response to regulatory changes
in the United States and the European Union, as well
as the declining profitability of financial investment
in commodities because of lower prices. However,
this gap was to some extent filled by banks from
other countries and other agents like major trading
companies (Jégourel, 2015a and 2015b), as well as
the growing importance of commodity exchanges
in Asia, and particularly in China. Recent increases
in commodity prices in the first half of 2016 have
been associated with a revival of financial market
interest in commodities, as reflected in the 29 per
cent increase (since December 2015) in commodity
assets under management to reach $220 billion by
the end of April 2016, a level similar to that of 2008.6
Commodity prices also rallied in early 2016 due to
the surge in Chinese speculative commodities trading, which was especially evident for iron ore, steel,
coal and cotton until regulatory measures in China
led to some correction.7
3. Recent developments in commodity
markets
(a) General evolution of commodity prices
Commodity prices continued to plunge in 2015.
All commodity groups experienced even larger price
declines than in 2014, with crude oil prices falling the
most (table 1.3). Plummeting oil prices explain the
contraction of almost 37 per cent in the commodity
prices index, which was even larger than the 29 per
cent decline seen in 2009 after the global financial
crisis erupted (non-oil commodities prices contracted
by 17 per cent, as in 2009). Since March 2016, the
downward trend in commodity prices appears to
have been arrested, and in some cases reversed (see
chart 1.2).
The main factors behind the relatively low
levels for most commodity prices throughout 2015
were persistent oversupply, and associated levels of
inventories. Since 2011 and continuing to 2015, supply increases have been larger than demand growth
(b) Specific market developments by major
commodity group
In the energy commodities group, crude oil
prices declined by 47.2 per cent in 2015. The price
of Brent crude oil reached a low of $30.8 a barrel for
its monthly average of January 2016. It recovered in
the subsequent months to levels of around $50 per
barrel in May–June 2016 (UNCTADstat).
12
Trade and Development Report, 2016
Table 1.3
WORLD PRIMARY COMMODITY PRICES, 2010–2016
(Percentage change over previous year, unless otherwise indicated)
2016a
Commodity groups
2010
2011
2012
2013
2014
All commodities c
24.6
26.4
-2.0
-3.2
-7.1
-36.7
-14.5
-4.9
Non-fuel commoditiesd
20.4
17.9
-8.3
-6.7
-6.1
-16.9
-4.2
17.3
Non-fuel commodities (in SDRs) d
21.7
14.1
-5.5
-6.0
-6.1
-9.7
-4.2
26.2
7.4
5.6
17.8
16.5
-1.4
-0.4
-7.4
-6.7
-4.1
-3.8
-14.8
-14.2
-0.7
-1.6
33.8
37.0
17.5
26.8
-21.5
-18.3
23.5
-8.1
-7.3
47.8
27.3
8.5
-1.0
42.9
-4.9
11.4
-25.7
-19.7
0.8
-23.6
2.0
-23.9
29.9
25.6
-10.4
-19.7
2.3
43.1
-5.7
-3.0
-20.4
38.1
69.8
42.9
4.4
15.4
2.0
-5.7
-5.9
-14.8
-1.0
35.9
17.3
27.5
13.2
3.3
-11.5
3.7
22.7
22.2
20.0
50.1
35.1
5.9
10.8
27.2
-17.1
2.6
2.6
-0.1
5.1
0.9
-7.6
-17.9
-2.3
-12.1
-1.9
-10.6
-5.9
-12.6
-3.9
22.1
-22.2
-6.1
-17.8
0.6
-5.8
-21.0
-10.5
-14.7
-23.1
-10.9
2.9
-19.8
17.2
-13.2
-2.7
-12.8
1.1
5.9
6.8
37.9
68.0
24.3
4.1
10.6
59.4
12.8
Soybeans
Agricultural raw materials
3.1
38.3
20.2
28.1
9.4
-23.0
-7.9
-7.4
-9.7
-9.9
-20.6
-13.6
1.7
-4.7
16.6
8.5
Hides and skins
Cotton
Tobacco
Rubber
Tropical logs
Minerals, ores and metals
60.5
65.3
1.8
90.3
1.8
41.3
14.0
47.5
3.8
32.0
13.4
14.7
1.4
-41.8
-3.9
-30.5
-7.1
-14.1
13.9
1.5
6.3
-16.7
2.6
-5.1
16.5
-8.8
9.1
-30.0
0.4
-8.5
-20.6
-14.7
-1.7
-20.3
-16.5
-22.0
-20.1
-1.9
-4.8
-4.9
0.5
-11.4
20.7
13.1
60.4
-14.0
7.3
-5.4
30.5
1.1
82.4
50.4
47.0
48.9
25.0
30.5
26.1
10.4
50.3
15.0
28.0
17.1
5.0
11.8
1.5
27.8
-15.8
0.5
-23.4
-19.2
-9.9
-23.4
-14.2
-11.2
6.4
-8.6
-20.3
5.3
5.7
-7.8
-14.3
3.9
-1.9
-15.4
1.1
-25.6
-28.4
-1.8
-6.4
12.3
-2.2
13.2
-10.3
-10.9
6.5
-42.4
-26.6
-19.8
-29.8
-14.8
-10.6
-8.4
-7.2
-1.7
-6.6
0.8
-14.6
-26.8
-3.1
-7.1
5.2
-24.1
20.5
-32.2
54.5
7.9
-46.5
27.3
-2.8
108.9
28.0
31.4
1.0
-0.9
-7.5
-47.2
-23.6
-20.3
3.0
8.9
-1.7
3.6
-1.3
-9.8
..
..
All food
Food and tropical beverages
Tropical beverages
Coffee
Cocoa
Tea
Food
Sugar
Beef
Maize
Wheat
Rice
Bananas
Vegetable oilseeds and oils
Aluminium
Phosphate rock
Iron ore
Tin
Copper
Nickel
Lead
Zinc
Gold
Crude petroleum
e
2015
2015-2016
versus
2003-2008b
Memo item:
Manufacturesf
Source: UNCTAD secretariat calculations, based on UNCTADstat; and United Nations Statistics Division (UNSD), Monthly Bulletin
of Statistics, various issues.
Note: In current dollars unless otherwise specified.
a Percentage change between the average for the period January to June 2016 and the average for 2015.
b Percentage change between the 2003–2008 average and the 2015–2016 average.
c Including crude oil and gold.
d Excluding crude oil and gold. SDRs = special drawing rights.
e Average of Brent, Dubai and West Texas Intermediate, equally weighted.
f Unit value of exports of manufactured goods of developed countries.
13
Current Trends and Challenges in the World Economy
The world oil market moved from a balanced
situation in 2012–2013 to excess supply in 2014
and 2015 (TDR 2015). World oil demand expanded
from 90.7 million barrels per day (mbd) in 2012 to
94.7 mbd in 2015. Non-OECD countries accounted
for 96 per cent of this increase, with 68 per cent
coming from China, India and other Asian countries.8 Meanwhile, world oil supply increased from
90.9 mbd in 2012 to 96.4 mbd in 2015. A number of
OPEC countries have continued to pump oil at high
levels in 2016;9 in particular, the Islamic Republic
of Iran has been significantly increasing its oil production after its return to world markets, at an even
faster rate than expected, in order to reach its presanction levels.
By contrast, in the United States, oil supply has
been falling in response to lower oil prices: crude oil
production fell from an average of 9.4 mbd in 2015
to 8.7 mbd in May 2016, and is forecast to decline
further to 8.2 mbd in 2017 (EIA, 2016).10 The capacity of oil production to rapidly recover if oil prices
rise again is uncertain, due to financial reasons. Many
oil producers in the United States had increased
their production based on substantial borrowing,
and so low prices have led to financial difficulties
and increased bankruptcies in this sector. In addition to reduced oil production in the United States,
unplanned supply disruptions in Canada, Ghana and
Nigeria meant that world oil supply declined slightly
in the first quarter of 2016.
Modest growth in the global economy and
slower demand growth in emerging markets negatively affected prices of the minerals, ores and metals
group, which tend to be highly correlated with global
industrial activity. In 2015, many metal markets continued to register production overcapacity, with iron
ore and nickel being the worst performing. In some
cases, oversupply was exacerbated by big mining
companies increasing their production despite lower
prices, in order to drive less profitable producers
out of the market; in general, mining companies
initially responded to lower prices by trying to curb
costs but maintain volumes, so inventories remained
high. Nevertheless, the market seems finally to be
reacting to the price drop, with cuts in production or
announcements to do so for some minerals, ores and
metals such as lead and zinc, and to a lesser extent
aluminium and copper.11 Actual and planned production cuts in oil production, as well as in the minerals
and metals sectors, suggest that supply adjustment
Chart 1.2
MONTHLY COMMODITY PRICE INDICES BY
COMMODITY GROUP, JANUARY 2002–JUNE 2016
(Index numbers, 2002 = 100)
450
1.9
400
1.8
350
1.7
1.6
300
1.5
250
1.4
200
1.3
150
1.2
100
1.1
50
1.0
0
2002
2004
2006
2008
2010
2012
2014
2016
0.9
All commodities
Non-fuel commodities
Non-fuel commodities (in SDRs)
All commodities (in SDRs)
Dollar per SDRs (right scale)
600
500
400
300
200
100
0
2002
2004
2006
2008
2010
2012
2014
2016
2014
2016
Agricultural raw materials
Minerals, ores and metals
Crude petroleum
400
300
200
100
0
2002
2004
2006
2008
2010
2012
Food
Tropical beverages
Vegetable oilseeds and oils
Source: UNCTAD secretariat calculations, based on UNCTADstat.
Note: Crude oil price is the average of Brent, Dubai and West
Texas Intermediate, equally weighted. Index numbers
are based on prices in current dollars, unless otherwise
specified.
14
Trade and Development Report, 2016
Table 1.4
COMMODITY CONSUMPTION IN CHINA, SELECTED COMMODITIES, 2002–2015
Consumption
volume
2002
Share in world
consumption
(Per cent)
Annual growth rate
(Per cent)
2015
2002
2015
2003– 2009–
2008 2011 2012
2013
2014
2015
Aluminium (refined)
4 115
31 068
16.2
54.4
21.3
12.4
14.4
8.4
23.9
14.2
Copper (refined)
2 737
11 353
18.2
50.2
10.8
14.1
12.9
10.5
15.0
0.4
26.0
22.7
4.4
3.6
-6.2
13.8
128.2 109.9
-1.3
55.1
35.4
12.2
Nickel (refined)
84
964
7.1
50.3
Coffee
0
2 463
0.0
1.7
Cotton
28 950
32 500
29.6
29.9
Corn
125 900 217 500
20.1
Rice
135 700 146 000
33.4
Wheat
105 200 112 000
Soybeans
Oil
8.6
-4.3
-5.3
-4.2
-4.3
-1.5
22.2
3.6
7.3
6.4
4.0
-2.9
7.7
30.6
-0.6
1.5
1.0
1.4
1.0
1.0
17.5
15.9
0.1
4.9
2.0
-6.8
0.0
-3.9
35 290
95 250
18.5
30.0
7.3
11.9
5.7
5.8
8.2
9.2
248
560
6.8
12.9
7.1
7.8
4.8
4.3
3.9
6.3
Source: UNCTAD secretariat calculations, based on World Metal Statistics Yearbook, various issues; BP Statistical Review of World
Energy 2016; and United States Department of Agriculture, Production, Supply and Distribution online database.
Note: Data for the volume of consumption are in thousand tons for metals, cereals and soybeans, in million tons for oil, in thousand
48 lb. bales for cotton and in thousand 60 kilogram bags for coffee.
has already begun. This is likely to continue over the
next few years as oil and mining companies cut their
exploration and investment expenditures.
Gold prices tend to be delinked from those of
other minerals, ores and metals because of its role as
a store of value. Gold prices experienced the lowest
average decline in 2015 and have risen in the first half
of 2016, in response to increasing investor demand.
This suggests continued concerns about the prospects
of the global economy and the effects of the delayed
decision by the United States Federal Reserve to
increase interest rates.
Price changes in the agricultural commodities
group have been more diverse in 2015 and the first
half of 2016. Prices in this group have been mostly
determined by weather conditions but producers
have also benefited from the lower price of oil. In
the subgroup of food commodities, cereal prices
remained subdued as a result of abundant crops in
major producing countries for several years and
high inventory levels. The El Niño meteorological
phenomenon has affected crop conditions in some
food commodities, particularly in Africa and Asia,
and raised concerns about food prices and food insecurity in affected regions, but the comfortable level
of inventories has prevented much of an impact on
international prices in 2015.
Like minerals, oils and metals, price movements
of agricultural raw materials follow the industrial
production cycle. After several years of decline, cotton prices remained relatively stable at low levels as
production was lower than consumption, but levels
of stocks remained high. Natural rubber prices continued to decline in 2015, but have rebounded in the
first half of 2016, pointing to the success of the export
quota scheme agreed by the International Tripartite
Rubber Council (World Bank, 2016), which includes
the three major producing countries, Indonesia,
Malaysia and Thailand.
15
Current Trends and Challenges in the World Economy
4. International capital flows to
developing economies
In the past half century, developing economies
received three main waves of net capital flows, in
1975–1981, 1991–1997 and 2004–2011; in each case
these were followed by periods of steep reductions or
reversals. Net capital flows are the difference between
net capital inflows (increases minus reductions of
liabilities towards non-residents) and net capital
outflows (changes in net foreign assets earned by
residents). During the 1970s and 1980s, capital outflows from developing economies were modest, and
overall net capital flows to these economies resulted
almost exclusively from foreign investor decisions,
as reflected in net inflows. By the mid-1990s, emerging economies also started to be a source of capital
outflows, and some of them gained relevance as
international financial centres. This explains the
simultaneous increase or decrease of net inflows to
and outflows from emerging economies at moments
of great expansion (as in 2007) or retraction (as in
2009) of capital flows.
Since the onset of the global financial crisis,
and in the wider context of their fast integration into
international financial markets, developing countries,
and in particular emerging market economies, have
been exposed to highly volatile capital flows. Strong
surges in capital flows have alternated with repeated
dips in rapid succession.
The surge in capital flows to developing and
emerging economies between 2010 and the first quarter of 2014 (see chart 1.3) took place in the context
of monetary expansion in some major economies, led
by the asset purchasing programmes (or quantitative
easing policy) of the United States Federal Reserve.
These dramatically lowered the yields of financial
Chart 1.3
NET CAPITAL FLOWS FOR SELECTED COUNTRY GROUPS, 2000–2016
(Billions of dollars)
300
200
100
0
-100
-200
-300
I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I
2000
2001
2002
Asia, excl. China
2003
2004
China
2005
2006
Africa
2007
2008
2009
Latin America
2010
2011
2012
2013
Transition economies
2014
2015 2016
Total
Source:UNCTAD, Financial Statistics Database, based on IMF, Balance of Payments Database; and national central banks.
Note: The samples of economies by country group are as follows: Transition economies: Kazakhstan, Kyrgyzstan, the Russian
Federation and Ukraine. Africa: Botswana, Republic of Cabo Verde, Egypt, Ghana, Mauritius, Morocco, Mozambique,
Namibia, Nigeria, South Africa, the Sudan and Uganda. Latin America: Argentina, the Plurinational State of Bolivia, Brazil,
Chile, Colombia, Ecuador, El Salvador, Mexico, Nicaragua, Paraguay, Uruguay and the Bolivarian Republic of Venezuela.
Asia excluding China: Hong Kong (China), India, Indonesia, Jordan, Lebanon, Malaysia, Mongolia, Pakistan, Philippines,
the Republic of Korea, Saudi Arabia, Singapore, Sri Lanka, Thailand, Turkey and Viet Nam.
16
Trade and Development Report, 2016
assets in major financial centres, prompting a change
in investors’ portfolio allocation decisions in favour
of the (riskier) emerging market “asset class”. The
perception that these economies had “decoupled”
from the developed world to deliver self-sustaining
high growth rates further strengthened this direction
of flows. The end of the Federal Reserve’s asset purchasing programme in 2014 clearly had an impact on
the reversal of flows, but the most relevant factors
were the protracted slowdown in developed-country
growth, combined with steep falls in commodity
prices, both of which adversely affected developing
country exports and growth prospects. Changing
prospects reinforced capital outflows, as the “carry
trade” positions began to make losses and were rapidly unwound. This said, capital flow movements
had proved highly volatile throughout this period,
with the eventual turning point of 2014 having been
preceded by a series of shorter dips in capital flows
to developing economies since 2008.12
The pronounced decline in net inflows since
mid-2014 and in particular throughout 2015 drove
aggregate net capital flows into negative territory,
for the first time since the Latin American debt crisis
in the second half of the 1980s. Foreign investors
exited large developing and transition economies,
especially in the fourth quarter of 2015 when withdrawals of capital of non-residents became larger than
inflows. In the aggregate, overall capital net flows
were negative by about $656 billion in 2015;13 about
2.7 per cent of the total GDP of these countries. The
turnaround of 4.4 percentage points of GDP from a
surplus of 1.7 per cent in 2013 is much larger than the
“sudden stops” of 1981–1983 (a decline in net flows
from 2.8 per cent of GDP to 0.6 per cent), 1996–1998
(from 2.8 to 0) and 2007–2008 (from 3.1 to 0.2 per
cent of GDP). The recent drop in net capital inflows
into emerging economies was due to a reversal in
“other investment liabilities” (from 1.4 in 2014 to
-1.2 per cent of GDP in 2015) and a decline in portfolio flows (from 1.4 to 0.1 per cent of GDP), which
more than offset the marginal rise in foreign direct
investment (FDI), from 3 to 3.3 per cent of GDP.14
The reversal in net capital flows was most
pronounced in Asia, especially in China (in fact,
the bulk of the negative net capital flows since 2014
is explained by China alone), but also hit emerging economies in Eastern Europe and the Russian
Federation. By contrast, Latin America and countries
such as India and South Africa continued to receive
positive net capital flows. China’s net capital flow
deficit in 2015 amounted to around 4.5 per cent of
GDP, driven by external debt repayments by nonfinancial corporates, the unwinding of carry trade
operations, a decline in offshore convertible renminbi
deposits,15 and outward FDI that increased to 1.8 per
cent of GDP, approaching the level of inward FDI
flows (2.4 per cent of GDP). The gradual recovery
in net inflows to developing economies observed in
the first quarter of 2016 continued to be offset by
outflows from residents, which maintained net capital
flows in negative territory.
Recently there has been a revival of risk appetite
in global financial markets that once again attracted
investors to emerging economies. In the first half
of 2016, the currencies of large emerging market
economies strengthened against the dollar, and the
prices of both financial assets and commodities rose.
As in previous financial cycles, there is a significant
correlation in the direction and the intensity of capital flows across large developing economies, which
suggests that common factors like developed country policies and risk perceptions largely determine
capital movements (TDR 2013; TDR 2014).16 With
financial globalization, economists have stressed the
importance of “push factors” – mainly changes to
global liquidity and risk – as the main determinants
of surges and reversals in capital flows, giving “pull
factors”, i.e. country-specific factors and demand,
only a secondary role. Global factors act as “gatekeepers”, whereas “pull factors” – in particular the
foreign exchange regime – explain different degrees
of exposure to changes in global conditions and the
final magnitude of the surge in particular countries
(Fernández-Arias, 1996; Cerutti et al., 2015).
The cyclical nature of these cross-border capital
flow movements, as opposed to their mere volatility,
is worth emphasizing, not least because these financial cycles are at the heart of growing challenges
to developing country debt sustainability and the
increased likelihood of substantial sovereign debt
crises. Easy access to cheap credit in boom times
has led to growing debt levels across the developing world. Developing country external debt stocks
alone rose from $2.1 trillion in 2000 to $6.8 trillion in
2015, while overall debt levels (foreign and domestic,
excluding financial sector debt) rose by over $31 trillion between 2000 and 2014, with total debt-to-GDP
ratios in many developing countries reaching over
120 per cent, and in some emerging economies
Current Trends and Challenges in the World Economy
17
over 200 per cent.17 Only a couple of years ago, the
amount of debt low-income developing countries
could have sold to keen investors seemed almost
limitless. International sovereign bond issuances in
these economies rose from a mere $2 billion in 2009
to almost $18 billion by 2014.
increase the value of foreign-currency denominated
debt. For commodity exporters, the need to meet
rising debt servicing requirements also generates
pressures to continue to produce, potentially worsening excess supply constraints and downward
pressures on commodity prices (Akyüz, 2016).
But with the tide turning and access to cheap
credit beginning to dry up, the risks of fast integration into international financial markets have become
apparent. Developing countries have expanded and
opened up their domestic financial markets to nonresident investors, foreign commercial banks and
financial institutions; they have allowed their citizens
to invest abroad and, as mentioned, many developing country governments engaged in raising finance
in developed country financial markets. Against the
backdrop of falling commodity prices and weakening growth in developed economies, borrowing
costs have been driven up very quickly, turning what
seemed reasonable debt burdens under favourable
conditions into largely unsustainable debt. But the
procyclical nature of capital flows – cheap during a
boom and expensive during downturns – is not the
only drawback. Once a crisis looms, currency devaluations to improve export prospects simultaneously
More generally, additional factors add to the
market risks, such as high maturity risks in particular in domestic bond markets and interest rate risks.
Finally, growing contingent liabilities – whether
stemming from public-private partnership contracts
or from the need to transfer high and systemically important corporate debt onto public balance
sheets – tend to become more visible once things go
wrong. Thus, in the current circumstances, the many
downsides of excessive financial and capital account
liberalization may well mean that the international
community should prepare for managing debt workouts in a faster, fairer and more orderly manner than
is currently the case. Already, several countries have
turned to multilateral lending institutions, such as the
IMF and the World Bank, in order to obtain financial assistance: Angola, Azerbaijan, Ghana, Kenya,
Mozambique, Nigeria, Zambia and Zimbabwe have
already asked for bailouts or are in talks to do so.
C. The slowdown of global trade
The growth of global merchandise trade volume
slowed to around 1.5 per cent in 2015, from 2.3 per
cent in 2014, and the slow pace has continued through
the first half of 2016. This trend, which began in 2012,
has been more pronounced than for world output.
To many observers this prolonged period of
sluggish trade – the longest since the early 1980s
– is a principal reason for the weakness in global
growth since the financial crisis, just as its revival is
seen as the best hope for recovery, overcoming other
aggregate demand constraints. Accordingly, measures
to increase external competitiveness and facilitate
trade have become a policy priority, especially in
developed economies. Despite their adoption, the
fact that trade has continued to slow down suggests
limits to such measures and raises the possibility that
they may even be self-defeating.
First, domestic demand, on which trade depends,
is not an exogenous outcome for policymakers; many
of the measures adopted to boost export market shares
tend to weaken aggregate demand (TDR 2012; TDR
2013). Second, by limiting the role of the public sector
and accelerating the pace of financial liberalization,
the policy space to manage a sustained recovery
is significantly narrowed (TDR 2014; TDR 2015).
Third, what may appear sensible from the perspective of a single country or group of countries, like
aiming at net export gains, runs into a “fallacy of
18
Trade and Development Report, 2016
composition” at the global level (not all countries
can be net exporters) and can exacerbate a “race to
the bottom” that worsens the sustainability of global
demand (TDR 2014).
Yet, despite the fact that the measures to
increase competitiveness have contributed to, or at
least preceded, the global trade slowdown, policymakers in many countries continue to see them as the
only route to the recovery of trade, and, by implication, economic growth. Indeed, governments in both
developed and developing countries have been pursuing mega regional trade and investment agreements,
as a more comprehensive and workable approach to
boosting trade and advancing economic integration
than through discussions at the multilateral level.
The prominent place that such agreements have
taken in official policy discussions, and even electoral campaigns, calls for full and careful scrutiny.
This is not the aim of this section. Rather, the focus
is more narrow on whether the current deceleration
of global trade can be attributed to obstacles that
would be lifted by enacting such trade and investment agreements.
1. Preliminary observations on the
causes of the trade slowdown
It has been argued that trade has slowed
because of rising protectionism since the global
crisis (Evenett, 2014). However, apart from isolated
cases concerning a few products (such as some
metal products), there is little evidence that tariff
changes explain the prolonged sluggishness of global
trade. Average tariff figures have been declining
steadily since the establishment of the World Trade
Organization (WTO), and are currently at historic
lows (chart 1.4). Moreover, any partial tariff increases
were certainly not on a scale that could explain the
sharp slowdown in trade.
Global averages could, of course, be misleading given the uneven geographical distribution of
trade. For a detailed analysis of import tariffs by
region over the period 2008–2012, the period of
trade slowdown, see UNCTAD (2015a). It shows
trade restrictiveness measures from the perspective
of importers as well as exporters, confirming that
while the group of developed countries has broadly
Chart 1.4
AVERAGE GLOBAL TARIFFS, 1995–2014
(Per cent)
7
6
5
4
3
2
1
0
1995
2000
2005
2010
2014
Most favoured nation (MFN) tariff
Applied tariff
Source: UNCTAD secretariat calculations, based on UNCTAD,
TRAINS; and WTO, I-TIP databases.
maintained the same level of tariff restrictions over
these years, most developing regions have reduced
such restrictions (with the partial exception of South
Asia, showing a negligible increase of less than half a
percentage point). In terms of market access defined
by the levels of import tariffs faced by exports from
different regions, a similar conclusion can be reached:
developed countries faced lower tariff restrictions in
2014 than in 2011 or 2008, as did countries in South
Asia, West Asia and Africa. Meanwhile, East Asia,
Latin America and economies in transition faced
similar or higher tariffs for their exports to developed
countries than in 2008. In sum, while the aggregate
picture confirms small changes in tariffs since the
financial crisis, developing countries overall have
made more concessions than developed countries in
recent years.
On a bilateral basis, the same indices of restrictiveness suggest that even though many developing
countries still have higher levels of applied tariffs
than developed countries, these have declined since
2008 in most regions, especially within regions (see
table 1.5).
This empirical evidence suggests that neither
the current level of average tariffs nor their trend in
19
Current Trends and Challenges in the World Economy
Table 1.5
AVERAGE LEVELS OF TARIFFS BETWEEN COUNTRY GROUPS
IN 2014 AND CHANGES BETWEEN 2008 AND 2014
(Per cent and percentage points)
Exporting group
Importing group
East Asia
Latin
America
South
Asia
SubSaharan
Africa
West Asia
Transition and North Developed
economies
Africa
countries
East Asia
2.6
[-0.7]
4.5
[-0.2]
3.2
[-0.9]
1.9
[0.1]
2.6
[0.0]
1.6
[-0.2]
5.2
[-0.6]
Latin America
9.2
[-0.4]
1.1
[-0.6]
9.7
[-0.5]
1.5
[-0.3]
2.1
[0.5]
2.9
[-0.2]
3.8
[-0.3]
South Asia
13.2
[0.8]
10.2
[-3.7]
7.1
[-0.7]
4.5
[-2.0]
7.4
[0.4]
5.2
[-2.9]
10.6
[0.8]
Sub-Saharan Africa
11.4
[-0.2]
9.1
[0.0]
8.1
[0.3]
3.9
[-0.7]
6.9
[-0.4]
5.1
[-0.3]
7.5
[-0.7]
Transition economies
6.7
[-2.4]
9.0
[-2.7]
6.7
[-2.5]
1.7
[-1.2]
0.4
[0.3]
6.2
[-1.4]
4.6
[-2.0]
West Asia and North Africa
5.6
[-0.3]
5.4
[-1.3]
4.0
[0.1]
3.5
[-0.4]
6.9
[3.0]
1.6
[-0.3]
3.7
[-0.7]
2.7
[0.3]
1.1
[0.3]
2.9
[0.0]
0.3
[-0.2]
1.1
[0.2]
0.4
[-0.1]
1.8
[-0.3]
Developed countries
Source: UNCTAD, 2015a.
Note: The cells in the matrix show the tariff trade restrictiveness index (TTRI) calculated for the imports of the regions in the rows
which are experienced by the exporting regions of the columns. Numbers in brackets show the percentage change of the
TTRI from 2008 to 2014.
recent years can be seen as an explanation for the
slow growth of global trade or an obstacle to future
recovery. Moreover, given that the level of “applied
tariffs” by countries, aggregated at the global level,
has remained considerably and consistently below the
corresponding level of most favoured nation tariffs
(chart 1.4), the claims of increased tariff protectionism would appear to be at least exaggerated.
Concerns have also been raised about a possible
surge of hidden or “murky” protectionism since the
global financial crisis, to the extent that the trade
slowdown has been attributed to rising “non-tariff
measures” (NTMs) applied, in particular, to specific
product lines. This is a more nuanced (and more difficult to measure) aspect of trade policy, since NTMs
cover a wide array of regulatory issues, standards,
technical requirements, environmental and health
conditions, etc. As noted in TDR 2014: 91, the
association of these measures with a “murky” form of
protectionism “is problematic, since it also includes
several measures that have an important public policy
purpose, not only for promoting financial stability
and preventing drastic declines in employment, but
also for building domestic productive capacity and
protecting consumers”. Moreover, “the assessments
of the impact of these measures rely entirely on subjective judgement”.
UNCTAD has made progress in generating
indices of NTMs but the indicators are still quite
fragmentary. They measure the number of NTMs and
because of their qualitative nature they are not comparable across countries. A proper assessment of these
measures requires in most instances a case-by-case
analysis and may even involve following up litigation processes in some depth (UNCTAD, 2015b).
Aside from the difficulty of measuring NTMs, what
20
Trade and Development Report, 2016
Chart 1.5
DEGREE OF IMPORT DEPENDENCY OF
EXPORTING INDUSTRIES IN SELECTED
COUNTRIES, 2002–2014
(Per cent)
80
70
60
50
40
30
2002
2004
2006
2008
China
Republic of Korea
2010
2012
2014
Mexico
Thailand
Source: UNCTAD secretariat calculations, based on UN Comtrade;
and UNCTADstat.
is even more difficult is to quantify their impact on
global trade volumes (Raza et al., 2014). Needless
to say, a number of NTMs, particularly in relation to
standards (quality of products, production processes)
and also in relation to compliance with patents and
other regulations, have historically contributed to
constrain market access of developing countries to
developed countries. Yet, this is not an emergent
problem explaining the slowdown in recent years.18
Beyond issues of trade policy, another possible
factor explaining the observed trade deceleration is
the changing structure of demand, particularly in
systemically important economies. A shift in the
composition of demand towards services or away
from investment goods might offer an explanation,
but neither the timing of the trade surge or its subsequent decline would seem consistent with such
shifts in the structure of global demand. A more
compelling explanation is based on the evolution of
international production networks (Constantinescu et
al., 2015). The rise of global value chains, given their
heavy reliance on imported parts and components for
processing and re-export, and the very high elasticity of trade between the mid-1980s and the early
2000s, can be explained by the establishment of the
first stages of these chains. As developing countries
participating in such chains diversify their economies
and develop additional skills and technologies, it is
possible that a greater proportion of the inputs used
in their tradeable sectors could be produced domestically, leading to a reduction of global trade elasticity.
If a sufficiently large trade partner, or a large
group, evolves rapidly from one stage to the other
(a phenomenon characterized as “shrinking chains”)
then there is likely to be an immediate impact on
the volume of global trade. Chart 1.5 shows that
this was apparently the case for China, which managed to reduce the import dependence indicator of
its manufacturing exports from about 60 per cent in
2002 to 40 per cent in 2008.19 The ratios for other
countries have remained flat over the same period.20
However, the dramatic reduction of import content
of the exporting industries of China should have
translated into a decline or slowdown of global
trade during 2002 to 2008, which was the period of
very fast growth of trade, and not during 2012 to the
present, when the production structure of China’s
exporting industries, as well as those of most other
economies with heavy value chain participation,
declined marginally or remained flat.21 Other aspects
of global production networks seem more relevant
than the import-export structure per se; they are
examined in more detail below.
2. Global trade in the context of
international production networks
(a) Diffusion of activities and the global
decline in wage shares
The rapid pace of global trade since the
mid-1980s has been closely linked to the internationalization of manufacturing through cross-border
production networks. “Lead” corporations, which
outsource selected activities to specific locations
and manage the assembly, branding and marketing of the final product, play the central role. In the
production of standardized goods, a mix of vertical
specialization and economies of scale has enabled
these corporations to increase profits by choosing
Current Trends and Challenges in the World Economy
locations with desirable combinations of relatively
high labour productivity, low wage and infrastructure
costs and favourable tax conditions. However, much
of this discussion has been delinked from the global
macroeconomic context in which these chains have
emerged.
From a global perspective, outsourcing and
the diffusion of activities can lead to ambiguous
employment outcomes, with a mixture of both job
creation and destruction.22 The internationalization of
production and trade competition may, as discussed
further in chapter IV, enhance or erode the scope for
industrialization via export-led strategies. There are,
however, potentially more unequivocal distributional
consequences at the global level associated with this
relocation of activities.
The growth of wages in most developed economies has been weak or stagnant for a considerable
time, with the result that the share of wages in national
income has been on a downward trend since the 1980s
(TDR 2012; TDR 2014). A number of factors explain
this trend: the general shift in bargaining power
away from labour, partly due to the greater mobility
of capital (Stockhammer, 2013); outsourcing and
de-industrialization (Jaumotte and Osorio Buitron,
2015); the lower costs of the consumer basket resulting from the ability of MNEs to import back cheaper
goods outsourced elsewhere (Seguino, 2014); and the
compensating ability of households to borrow on the
back of the holding gains derived from the ownership
of equity in a context of asset bubbles (Turner, 2008;
UN DESA, 2013, chap. 3).
The pressures on wage shares in developed
countries have not been offset by a trend in the opposite direction in developing countries. As discussed
in previous TDRs, competition on world markets for
labour-intensive manufactures among firms located
in developing countries tends to become competition
among labour located in different countries (TDR
2002). Wage growth is likely to be constrained even
as employment increases, not only because reserve
labour pools remain large, but also because the potential of MNEs to shift production to other developing
countries can act as a constraint on wage demands
(Burke and Epstein, 2003).
Chart 1.6 provides evidence of how such patterns of production and labour income have played
out in a selected group of industrializing developing
21
countries since the mid-1980s.23 The usual comparison is between the growth of exports (“trading more”)
and the significantly slower growth of value added
(“earning less”).24 To highlight the impact of the diffusion of activities on income distribution, the charts
show the evolution of relative wage incomes of these
“industrializing” countries as they gain export market
share. They also include a measure of the country’s
share in global product.
This indicates that those countries that did
exhibit increases in their global share of manufacturing exports did not show similar increases in wage
shares of national income relative to the global average. In periods of export success, shares of global
manufacturing exports rose faster than relative shares
of wage income, such that the ratio also increased.
This suggests that increased access to global markets
has typically been associated with a relative deterioration of national wage income compared with the
world level.
Exceptions to this general pattern are few.
The Republic of Korea succeeded in supporting
wage compensation, particularly during the early
1990s, without significantly affecting competition
for export market shares. Although it took up to
1993 to regain the market shares enjoyed in 1988,
up until the East Asian crisis the model allowed a
pace of export performance on a par with the pace
of wage compensation relative to that of the world
as a whole. From the 1997 crisis on, the Republic of
Korea conformed more closely to the general pattern
of “exporting more” but “earning less”.25 Another
unusual case is represented by the patterns in China
after the global financial crisis. From 2008 onwards,
policymakers managed to sustain increases in the
wage share without significantly affecting the pace
of increase in export market shares. As discussed in
earlier Reports, this may reflect the efforts to support
income generation at the household level in order to
allow faster increases in consumption than in investment and exports.
As discussed in other chapters of this Report,
the usual justification for greater trade and financial
liberalization is that the promotion of exports, even
if at the cost of a relative deterioration of wage
income, ensures a faster catch-up in terms of national
income. However, for the selected countries in these
charts, the patterns of convergence or divergence
(the variable showing national income relative to
22
Trade and Development Report, 2016
Chart 1.6
MANUFACTURING EXPORTS, WAGE EARNINGS AND GDP OF SELECTED
COUNTRIES RELATIVE TO THOSE OF THE WORLD, 1985–2014
Brazil
4.0
0.40
China
20
1.0
3.5
0.9
3.0
0.35
15
0.8
0.7
2.0
0.30
1.5
1.0
Per cent
Per cent
2.5
0.25
10
0.6
0.5
5
0.4
0.5
0.0
1985
0.3
1990
1995
2000
2005
India
6
0.20
2010 2014
0
1985
0.40
5
0.25
Per cent
Per cent
4
3
2
0.20
1
1990
1995
2000
2005
0.15
2010 2014
Republic of Korea
4.5
4.0
3.5
Per cent
0.5
1985
1995
2000
2005
2010 2014
1.2
2.5
1.0
2.0
0.8
1.5
0.6
1.0
0.4
1990
1995
2000
2005
2010 2014
South Africa
0.2
1.1
1.0
0.7
0.9
0.6
0.8
0.5
0.7
1.6
0.4
0.6
1.4
0.3
1985
1.8
1990
1.4
0.8
2.0
1.0
Mexico
0.2
2.6
2.2
1.5
2010 2014
0.9
2.5
2.0
2005
2.8
2.4
3.0
2000
3.0
0.5
1985
Per cent
0
1985
1995
3.5
0.35
0.30
1990
1990
1995
2000
2005
Market share of manufacturing exports over world total
GDP of the country relative to the world
Ratio of export market share over share of wage income relative to the world (right scale)
Source: UN Global Policy Model using historical data compiled from UN Comtrade, UNCTADstat and UNSD.
2010 2014
0.5
23
Current Trends and Challenges in the World Economy
world income, in percentage terms) have little connection with whether export manufacturing shares
were falling, stable or rising. In the light of the above
discussion, part of the reason is that strategies based
on gaining a greater share of world manufacturing
exports through relative compression of wage shares,
tend to reduce the potential for growth in domestic
demand.
Chart 1.7
GLOBAL WAGE SHARE, 1985–2014
(Per cent of global income)
59
58
Together, the trends of developed and developing countries discussed above help explain the decline
of the global wage share, and, in particular, the very
sharp drop in 2002–2007 during the boom years for
trade and output (chart 1.7). The sharp turnaround
during 2008–2009 reflects the typical adjustment in
deep crises, as profits tend to take the first hit until
unemployment surges or workers’ contracts are
revised. The fact that the global wage share did not
fall in 2010–2011 to pre-crisis levels, and rose mildly
subsequently, is partly due to more active labour
market policies in a number of developing countries,
and some developed countries.26
(b) Under-consumption and trade
acceleration: The role of deficits
and lending
Given the relevance of labour income to sustaining consumption, it could be expected that the
observed long-term decline in wage share in global
income should translate into a tendency towards
under-consumption for the world as a whole.27 If
consumption demand for the world as whole was too
low, the likely outcome would have been a steady and
prolonged deceleration of investment and of global
trade (as import demand in all countries individually
depends ultimately on consumption and investment
demand). Thus, the real puzzle is how global trade
showed such dynamism while the global wage share
was on a steadily declining trend.
For the majority of developing economies,
under-consumption is a direct effect of the fact that
wage growth lags behind productivity with a concomitant rise in the share of non-wage income. One
consequence is that the aggregate savings propensity
increases, as the propensity to consume out of wage
income is typically far higher than that out of profits
(see TDR 2013). Under-consumption can also result
from the fact that labour and social protection tend
to be weak in developing countries and households
57
56
55
54
1985
1990
1995
2000
2005
2010
2014
Source: UN Global Policy Model using historical data compiled
from UNSD and national sources.
put aside a portion of their wage income as a buffer
(Akyüz, 2012). In any event, households in developing countries are earning insufficient incomes to
absorb the increased output of manufactured goods
they are producing, which is consistent with the
export specialization strategy.
Meanwhile, for developed countries as a group,
during the years of fast growth of global trade, and
especially in the period of global imbalances prior
to the financial crisis, there is no clear indication of
under-consumption. The major current account deficit countries followed a different model that allowed
a rise of consumption (public and private) despite the
wage share contraction.28 Indeed, in instances of sluggish activity (which could be expected to result from
a persistent decline of the wage share) fiscal levers
would bridge the demand gap until the momentum
for a new boom developed. More significantly still,
the suppression of wage incomes was compensated
for by the increase in household debt, enabled by
financial deregulation and relatively low interest
rates. This generated a debt spiral among households,
as well as a boom in asset markets such as housing
and stock markets, which in turn had positive effects
on consumption and investment. Such credit-driven
bubbles are not sustainable and eventually end, often
with a hard landing, as in 2008–2009.
24
Trade and Development Report, 2016
Chart 1.8
GLOBAL TRADE GROWTH, CREDIT EXPANSION AND FISCAL DEFICITS IN
THE MAIN CURRENT ACCOUNT DEFICIT COUNTRIES, 1986–2015
(Per cent, two-year moving average)
12
10
8
6
4
2
0
-2
-4
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014 2015
Growth of global trade volume
Growth of bank lending to private sector in main current account deficit countries
Compounded public sector deficits in main current account deficit countries
Average global export growth between 1986 and 2015
Source: UN Global Policy Model; using historical data compiled from UNCTADstat, UNSD and IMF.
Note: Main current account deficit countries are Australia, Canada, the United Kingdom and the United States. Variables correspond
to weighted averages. Shaded areas denote years of significant deceleration in growth of global exports below the average
for the period.
Under such “exceptional” conditions of credit
booms or intermittent fiscal expansion in a significant subset of countries, fast growth of demand and
global trade can be consistent with a declining global
wage share.
Chart 1.8 adds to the evidence presented above,
completing the global picture, by comparing the
growth of trade, bank lending and fiscal deficits. The
average annual growth of trade during this period was
5.5 per cent. Only during three sub-periods did global
trade experience a marked deceleration significantly
below the average, or a contraction: the crisis of early
1990s affecting Japan, the United Kingdom, the
United States and a few north European countries;
the “dot-com” crisis in the United States in 2001;
and the global financial crisis of 2008–2009.29 The
recent period since 2012 represents an unusual pattern
and will be discussed further below. Periods of weak
fiscal stances in the major deficit countries exerted a
negative influence on global trade. Declining and low
fiscal deficits preceded global trade decelerations.
Also, periods of trade slowdown or contraction have
coincided with sharp decelerations in the pace of
(real) bank credit expansion in such (current account
deficit) countries. Conversely, only after a relatively
sustained period of fiscal expansion and credit creation, did trade growth resume a fast pace. In brief,
along with a decline in the global wage share, the
patterns of global trade responded to a significant
degree to the interactions between fiscal stances and
credit creation in major deficit economies.
3. Summing up and implications for the
global outlook
The fast pace of global trade between the mid1980s and the financial crisis was, in part, encouraged
by an increased pace of trade liberalization, but it was
also heavily dependent on a series of global macroimbalances that eventually led to that crisis. The
Current Trends and Challenges in the World Economy
drastic correction of bank lending in deficit countries
which occurred with the global crisis of 2008–2009
led to a contraction and subsequent weak recovery
of trade despite the rise of public sector deficits.
The persistence of the most critical of imbalances,
that relating to wage shares, however, shows why a
recovery in trade is proving difficult. More precisely,
as long as the global wage share continues to decline
because of efforts to increase competitiveness,
including by shifting production from high-cost to
low-cost locations, global trade growth will rely on
the accumulation of deficits by a subset of economies.
For such patterns of trade growth to continue, however, either fiscal deficits or credit bubbles have to
help revive domestic demand, and therefore imports,
which otherwise would remain inadequate in the face
of the continuing weak growth of household income.
The unsatisfactory growth of trade from 2012
onwards, which was left unexplained above, can thus
be clarified. Chart 1.9 replicates the variables shown
above in charts 1.7 and 1.8, in conjunction with a conditional five-year projection. Reviewing the historic
period, the chart shows that recourse to either rising
fiscal deficits or credit bubbles to compensate weak
wage growth is proving increasingly difficult. In
particular, fiscal deficits in the major current account
deficit countries are, instead of rising, contracting
from unprecedentedly high levels. In 2015 these
were still higher than in most other periods, above
4 per cent of GDP on average. Policymakers in these
countries and in most of the developed economies are
not considering further fiscal expansion. Meanwhile,
even if fiscal deficits have been quite high in recent
years, bank credit expansion to the private sector,
at about 2.5 per cent, remains weak in comparison
with earlier periods. And this is despite extraordinary
“quantitative easing” experiments by central banks.
Businesses are not increasing spending and, rather,
continue to earn profits through cost-optimization and
financial operations (see chapter V of this Report).
Households are not significantly taking on greater debt
burdens (with the exception of the United Kingdom,
where the housing bubble has rapidly recovered from
the global crisis and credit demand has picked up).
The slow growth of global trade under these circumstances is not an anomaly, but is perfectly consistent
with the underlying structure of income generation,
demand and policy choice.
Chart 1.9 shows how the current configuration could play out over the course of a projection
25
generated with the UN Global Policy Model.30 The
projection encompasses a vast set of conditions
regarding the mid-term and is not in any way a
forecast. In essence, it assumes that most developed
economies, along with a few major developing
economies, will press ahead moderately in their
efforts at fiscal consolidation, even if this continues
to weaken growth in demand and does not manage to
improve the financial position of their public sectors,
as tax revenues will also remain weak. Likewise, in
the context of weak global demand, moves towards
greater product-market and external liberalization will
continue to constrain the growth of wage incomes,
including through the spread of international production networks. Finally, even if monetary policy is
expected to remain accommodative in most countries,
effective credit creation for the private sector will
continue to be sluggish. Under these circumstances, a
conservative estimate is that during the coming years
there will be a deterioration of the global wage share
somewhat greater than 1 per cent of the projected
global GDP. At the end of the five-year projection the
wage share will reach a slightly lower level than in the
pre-crisis period. The pace of bank credit expansion
and the level of public sector deficits in the major
current account deficit countries will remain around
the current figures, with perhaps a slow acceleration
of bank credit. The combination of these global conditions and patterns of the main current account deficit
countries will not help trigger a revival of global trade,
which may stay hovering around 2 per cent per annum.
In sum, under current structural conditions and
policy stances, assuming that no significant changes
in the direction of policies are implemented, trade
growth will continue to be sluggish as the global
wage share will continue to decline. Of course, a
number of variations to this scenario are possible.
Most notably, it remains plausible that surplus countries may increase spending in a way that will exert
a positive net contribution to global demand. In this
case the contributions to accelerate the pace of global
trade will be from surplus countries and not from
the countries now in deficit. What is more, such an
acceleration of demand from surplus countries does
not require credit bubbles, as the private sector in
these countries enjoys large net financial surpluses.
Similarly, such acceleration of domestic demand
does not require that these surplus countries engage
in excessively large public deficits, as at present they
enjoy relatively well balanced fiscal positions. But
for current surplus countries to succeed in exercising
26
Trade and Development Report, 2016
Chart 1.9
CONDITIONAL PROJECTIONS OF GLOBAL TRADE GROWTH AND RELATED
VARIABLES IN THE MAIN CURRENT ACCOUNT DEFICIT COUNTRIES, 2005–2020
(Per cent, two-year moving average)
55.5
12
10
55.0
8
54.5
6
4
54.0
2
53.5
0
53.0
-2
-4
2005 2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 2018
2019
2020
52.5
Growth of global trade volume
Growth of bank lending to private sector in main current account deficit countries
Compounded public sector deficits in main current account deficit countries
Global wage share (right scale)
Source: UN Global Policy Model; using historical data compiled from UNCTADstat, UNSD and IMF.
Note: Main current account deficit countries are Australia, Canada, the United Kingdom and the United States. Variables correspond
to weighted averages. 2015–2016: preliminary; 2017–2020: conditional projections.
a meaningful contribution to the growth of global
demand and trade, either the wage share or the public
sector deficit has to increase ex-ante. This is equally
true in other countries, and this seems to be a precondition to achieving faster growth of global trade
and GDP from the current low levels.
This analysis suggests why trade and inequality
have become closely associated in recent public discussions on globalization, but also why conventional
policy proposals are inadequate to counter a dangerous backlash against closer economic integration.
There are strong connections between the long-term
deterioration of global wage shares and both the trade
surge in the 1990s and 2000s and the slowdown of
trade and economic activity since 2011. If these trends
persist or worsen, then the threat of more determined
protectionist responses could become real. However,
like the boy who cried wolf in Aesop’s fable, blaming protectionism for current trends runs the danger
of not only distracting policymakers from making
inclusive growth the axis of a globally coordinated
programme but, as in the 1930s, of being ignored
when a real protectionist threat emerges.
Current Trends and Challenges in the World Economy
27
Notes
1
In an uncharacteristically harsh criticism of the
IMF’s role during the Greek crisis, the Independent
Evaluation Office of the IMF criticized the IMF for
having ignored the need for a standstill provision
and for early and orderly debt restructuring, thereby
contributing to the deepening of the country’s debt
and economic crisis (IMF/IEO, 2016).
2 Participation rate for men aged 20 or more fell from
72.7 per cent between 2000 and 2007 to 68.8 per
cent in the first half of 2016; in the case of women
aged 20 or more, the rate of participation declined
from 57.8 to 55.6 per cent in the same period (United
States Bureau of Labor Statistics).
3 Between 1973 and 2014, inflation-adjusted hourly
compensation for the median worker rose by a total
of 8.7 per cent, just 0.2 per cent per year. Conversely,
net productivity (defined as the output of goods and
services minus depreciation per hour worked) grew
by a total of 72.2 per cent, or 1.3 per cent per year
in the same period (Bivens and Mishel, 2015).
4 UNCTAD and WTO, 2016 news items: World trade
weakens in first quarter as imports decline in Asia,
15 June 2016.
5 World Metal Statistics Yearbook 2016 (World Bureau of
Metal Statistics, 2016). See: Got any copper to spare?
Please send it to China, Andy Home, Reuters, 23 February 2016; China’s first-quarter metal imports say
more about supply than demand, Andy Home, Reuters,
25 April 2016; and China, India see oil imports grow,
showing demand remains strong, OPEC Bulletin 3/16.
6 See Hansen (2016) and Aelbrecht (2016).
7See China: A liquidity perspective on the onshore
commodity boom, JP Morgan Economic Research
Note, 13 May 2016 and Citi (2016a).
8 International Energy Agency (IEA, 2016a); annual
data for India from BP (2016).
9 Talks in April 2016 among leading world oil-producing countries, including some non-OPEC countries,
failed to agree on a production freeze.
10 IEA (2016a) reports that by early May 2016 the
number of active oil drilling rigs in the United States
had fallen to a seven-year low of only 328, compared
with 668 a year earlier and the peak of 1,600 in
October 2014. Furthermore, upstream investment
in oil is drying up as reflected in the expected fall in
1 1
12
1 3
1 4
1 5
1 6
17
exploration and production capital (capex) expenditures of 17 per cent in 2016, after a reduction of
24 per cent in 2015. This would represent the first
time that such investment has fallen for two consecutive years since 1986 (IEA, 2016b).
For a more detailed information on mine closures and
production cuts by metal, see World Bank (2016),
Citi (2016b) and HSBC (2016).
For more detail, see UNCTAD (2015a). Policy Brief
No. 40, “When the Tide Goes Out: Capital Flows and
Financial Shocks in Emerging Markets”, 9 December
2015.
Overall capital flows include here net errors and
omissions, which have been persistently negative
since the second quarter 2014. This might be overestimating the size of net negative capital flows,
because part of these errors and omissions may
correspond to current account transactions. Without
errors and omissions, the negative balance for capital
flows was $525 billion in 2015.
It is noteworthy that, despite its intensity, the capital
flow reversal of 2015 did not result in severe financial crises and collapses in GDP growth, as similar
episodes had in the past. Greater resilience has
resulted in levels of international reserves that remain
relatively high in several developing economies and
from managed (rather than fixed) exchange rate
regimes, which have helped cushion the effect of
capital outflows on individual economies through
nominal adjustments (IMF, 2016). In particular, the
country that experienced the largest negative net
capital flows (China) is also the country with the
largest international reserves.
Offshore renminbi accounts are opened by Chinese
banks in jurisdictions outside mainland China
(e.g. Hong Kong (China), Macao (China), Taiwan
Province of China and Singapore) and available
for non-residents wishing to constitute renminbidenominated deposits. Thus, a reduction of such
deposits accounts for a negative capital inflow.
Cross-correlations for net capital inflows (from nonresidents) in 25 large emerging market countries
averaged 60 per cent in the period 2005–2015.
UNCTAD secretariat calculations and McKinsey
Global Institute (2015).
28
18
1 9
20
2 1
2 2
Trade and Development Report, 2016
Stating that mounting protectionism cannot be blamed
as the cause for slowing global trade does not logically
imply that improving the international trade framework
and rules would have no impact on global trade. For
instance, advancing in multilateral trade negotiations
(particularly in agriculture) or in some preferential
trade agreements may benefit employment and income
in developing countries, generating a demand stimulus
that would also stimulate global trade.
See also Setser (2016), making similar observations
based on country reports of the International Monetary Fund (IMF).
The empirical examination has been carried out for
around 40 developing countries and China emerged
as the only manufacturing exporter which showed
an apparent lowering of imported manufacturing
inputs for the exporting sector. A more specific study
comparing the import-export structures of assembly
operations between China and Mexico from the
early 1980s to 2006, confirms that China’s most
noticeable improvement in value-added exports of
manufactures took place between 2000 and 2006,
while in Mexico processing zones did not manage to
reduce import dependency at all during that period
(see Shafaeddin and Pizarro, 2010).
Moreover, a more granular picture suggests that in
several significant cases for the global volume of
intra-industry trade, like the motor vehicles and the
machinery subsectors, fragmentation (as measured
by trade of intermediates over total trade) is on a
somewhat increasing trend in recent years, rather
than declining (UNCTAD, 2015c).
See Patnaik (2010), which explains the diffusion of
activities by extending the Arthur Lewis model of
“unlimited supply of labour” to a global scale. Core
to this analysis are two observations. First, part of
the labour creation mediated by MNEs is at the
expense of shifting productive activities previously
undertaken in the core countries. Thus, some of this
is labour-displacing rather than labour-creating.
Second, the combination of high productivity of the
new jobs created in the developing country where
the new activities are undertaken, with the increases
in labour supply as workers from informal activities
aim at accessing the new jobs, may not contribute
to reduce labour reserves. Critically, for the pool of
labour reserves to shrink, the growth of aggregate
demand has to be significantly faster than the growth
of labour productivity (see Taylor and Vos, 2002, for
an analytical exposé).
2 3 The developing countries that managed to gain a
significant share of world exports during this period
are only a few in the East Asia region. For the sake
of completeness other semi-industrialized economies
in other regions (Africa, Latin America and South
Asia) are included even if their export market shares
are smaller than 2 per cent.
24 See, for example, Kozul-Wright (2007).
25 It should be clear from this discussion that “exporting more” but “earning less” does not refer to levels.
Generally, over time, the levels of both exports and
wage bills tend to increase but if export gains relative
to the world grow faster than wage earnings relative
to the world, the difference suggests a process of
faster profit accumulation.
26 A few countries managed to introduce labour protection and wage protection policies and averted a fall
of wage shares that would have resulted from the
distributional adjustments after the crisis. Between
2010 and 2014 recoveries of the wage share were
experienced in Argentina (equal to about 11 percentage points of GDP), Brazil (half of a percentage
point of GDP), China (2 percentage points of GDP),
Germany and South Africa (1 percentage point of
GDP).
27 Under-consumption should be understood in the
macroeconomic sense of a low share of consumption
in national income, not in level terms. As Keynes
(1936) puts it: “social practices and a distribution
of wealth which result in a propensity to consume
which is unduly low”.
2 8 See Patnaik (2010).
29 The South-East Asian crisis of 1997–1998 did not
contributed to a significant global trade slowdown
and is therefore not considered here.
30 See Cripps and Izurieta (2014).
Current Trends and Challenges in the World Economy
29
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